Seminario JobMarket

Sergio Feijoo-Moreira

Universidad Carlos III de Madrid

19-Jan-2021

Webinar – 14:30

Resumen

Business dynamism has experienced a significant decline during the last decades in the U.S. This paper offers a new explanation based on the assumption of providerdriven complementarity, which makes seemingly independent products become complements when provided by a single firm. I develop a quality ladder growth model where provider-driven complementarity is crucial in determining firms’ incentives to challenge incumbents in their established markets. I show that a decline in the average size of innovations induces a growth slowdown. Moreover, I find that the entry rate declines, and both concentration of sales and Research and Development expenditure increase even as the growth rate of the economy declines. This is in contrast to a standard quality ladder model without provider-driven complementarities which implies the reverse. The asymmetry generated by provider-driven complementarity between potential entrants’ and incumbents’ R&D incentives is key for the decline in business dynamism.

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